All Forum Posts by: Becca F.

Quote from @Nathan Gesner:

Quote from @Eric Dekker:

I have a new Rental property that I BRRRRed and is cash flowing relatively well. There is no early payment penalty on the loan. An extra $100/month would equate to the loan being paid off 7 years earlier and $27k in interest savings over the life of the loan. Does anyone have any thoughts on overpaying the mortgage?

Joe is right. Let the Tenant pay off the mortgage and keep your cash free to build up an account for the next purchase.

Have you heard of the law of diminishing returns? The longer you hold an investment, the lower your return. This graph demonstrates it visually, though your return may drop faster/slower depending on circumstances:

This chart shows that the property earned an 18% return the first year, but after year 10 the return has dropped below 12%. If you're trying to keep returns above 12%, you would want to sell this property and reinvest the equity in a new rental that earns a higher return and maximize growth.

People think "buy and hold" means holding on to a property forever. The truth is you will get a better return by reinvesting your equity to maximize the rate of growth.

Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a very basic explanation to get your juices flowing:

Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.

Pay cash for one house and rent it for $1,500. After five years you'll have earned $90,000 in rent income and gained $34,000 in appreciation.

Buy four houses with $50,000 down on each. Mortgage payment is $1,000 on each house, so you're essentially earning $500 per house or $2,000 a month. After five years you'll have earned $120,000 in rent income and gained $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.

This is super helpful. I thought about paying extra each month on my Indiana SFH rental to be mortgage free sooner but I'm still trying to acquire a few more properties.

I had a lender suggest to me to take out a HELOC on a California property (no first mortgage) and pay cash $150,000 to $300,000 for my next rental out-of-state to avoid those pesky interest rates which are going up and down and have a faster closing.

That makes no sense to me to pay $300,000 cash for a house, let alone $150,000. I'm seeing San Francisco Bay Area investors do this, pay $680,000 cash on a fixer (Selling agent said they had all cash offers. I looked at this property and he can't get it rented out now on Zillow $3750 asking rent). I did do a cash out refinance (pulled equity out of that California house) so I could do 20% down on a Midwest property. I'm not a huge fan of HELOCs with variable interest rates

Now all these responses are scaring me. I've been doing my own taxes through TurboTax Premier with my first rental in 2019. My 3 properties are LTR with one multi-unit owned with co-investors. I take the 12 month cash flow sheet the property management company gives me and plug in all the numbers (my percentage ownership) for the multi-unit. The properties aren't in LLCs. I did a renovation this year and will start entering the numbers. 

A family member's CPA gave me a rough quote of $1500 - I'm in the San Francisco Bay Area. I have a TurboTax CPA look through my returns before I file. It is time consuming doing my own taxes but I feel like it's valuable knowing the financial details. If I had the properties in LLC's I would definitely hire a CPA.

@Jack Jiang

It depends on who the CPA is when I call for help. There was a mistake on the rental income reported so I had to fix that and file an Amendment. The last CPA said he owns 15 properties so he gave me lots of helpful advice on how to file my 2022 returns. He also sent me a link on what counts as capital expenses and how to write them off on my renovation, what to depreciate and for how many years. 

I completely agree with the last part. Don't spend $35,000 on educational materials or "how to become a real estate investor" or "how to BRRRR" courses/programs. I attended free webinars or watched their videos on social media (mostly Instagram) and at the end the person is trying to sell me a mentorship program or additional courses. They range from $500 to more than $35,000. The last one was ridiculous, asking the potential investor/buyer to put up all the down payment but the mentor would help find the property, obtain property management and have access to his world class team of financial experts. Then sell the house 3 to 5 years later to find a better performing rental and you only get 50% of the proceeds. I told the guy if I have an extra $18,000 to $35,000 I would use it towards a down payment on a rental not on your program. Not sure if I should put out his name but everyone is now a real estate guru. I found YouTube video and the webinars on Bigger Pockets good resources - all free.

Like some of the others have commented, house hacking is good place to start. And network but be cautious - not everyone is out looking for your best interests and they will try to take advantage of newbies. 

I started out by renting out my primary residence in the Midwest instead of selling it when I moved to California(SF Bay Area). Good luck!

@Jack Jiang

I do my own taxes. I use TurboTax Premier and their CPAs review my return before I file. I have 3 properties, 1 SFH that was recently renovated, 1 multi-unit (co-owned with other investors), 1 SFH out of state. None of them are in LLCs. The multi-unit and out-of-state SFH were on my 2021 tax returns. The renovated house will be on this year's return so this will take a bit of work. I think learning how to file on my own was been very valuable. If I had just handed over my information to a CPA, I wouldn't have awareness of what's going on in detail.

I'm in the Bay Area and know one CPA charging $1500. The $500 to $1000 you  were quoted sounds very reasonable if that's for federal and state tax filing. For now, I'll probably do my own taxes. If I get LLCs for my properties or future rentals or just get tired of doing my own returns, that's when I'd get a CPA. 

@Daniel D.

Wow $450 and $750 are really low rents. You've been a nice landlord. 

That is something I've struggled with also. My tenants are getting a very reasonable rent for out-of-state (Midwest) SFH rental. My property manager advised me that if I raise the rent too much it will scare them away - they've had the same rent for 2 years in a row but I'm planning to raise it the summer of 2023 when their lease is up, not sure if it will be 5%, 7% or 10%. My property taxes increased significantly and didn't pass it onto my tenants. My current rent is in the range of other rental comps but rent is going up across the country.

I agree with the other comments. Talk to them so they get advance notice. And raise your rent each year a little. Good luck and keep us posted!

@Laurie Isabell

I'm sorry about the passing of your mom and her partner. I did an equity line with Figure Lending on a mortgage free house but it wasn't a traditional HELOC. It seemed liked combination of an equity loan and HELOC. They deposited the entire amount in my bank account after closing. I did a line of $250,000. I have a fixed 30 year rate at 6.41% (no points) but I got the line in April 2022. I'm making fixed monthly payments. Most of the payment goes to interest and very little to principal so I've barely paid it down in 6 months. My local lender said the interest amortization is front loaded - she really likes Figure and even took out a line of credit herself. The process was very quick. In my case, I didn't have to upload tax returns, etc. since my property was mortgage free and approved within 3 days, signed with a notary then received the funds in less than a week. The rates are higher with investment properties than a primary residence, like most loans or lines of credit.

The only thing I don't like about Figure is it's reported as revolving debt (grouped in with my credit cards) so my credit utilization goes way up (except for with Equifax which classified it as a mortgage loan). The draw period ends in 5 years. If I wanted to draw more money, which I wouldn't do, I'd pay the current interest rate, which is 9.16% (when I asked them last week). If I make payment of 10% of the balance, the line re-amortizes and my monthly payment would be lower. 

I'm refinancing to a 30 year fixed cash out refinance because I need more money for the renovation (not inexpensive in San Francisco Bay Area). I didn't want to drive up my credit utilization score more by doing a HELOC or another Figure line. One lender said I could keep the Figure line open but balance would need to be paid down to $0. Figure was okay subordinating to another lender to 2nd position. Three lenders said no, have to pay off the Figure line.

My renovation costs have a running total of $285,000 (sounds bad but in the context of a California property with lots of equity with no first mortgage, it's not). Landscaping and maybe a new fence are the next projects. All new electrical wiring (down to the studs in the kitchen and bathrooms) put it over budget $100,000. The house looks amazing and my tenants have a safe, clean, up to code place to live in with new everything. I'm glad I didn't take the cheap route (a repair person to sand and re-paint cabinets or reface the cabinets and install new countertops). I used a licensed contractor and a licensed painter with EPA certification. I wasn't going to get market rate rent with an old kitchen and bathrooms and it would have been a fire hazard. 

I personally like having a fixed monthly payment. If I had smaller less costly renovation project, I might have done a HELOC. Good luck!

@Amby Bhagtani

I have a W-2 job and I'm not a real estate professional. My rental properties (3 properties with 2 SFH, 1 multi-unit) don't negate my W-2 income but I get a small federal tax refund vs. owing the IRS just based on my W-2 salary (where I could just take a standard deduction) since I'm itemizing all my deductions. The rental expenses and depreciation (over 27.5 years) reduce my taxable income with my rents received but it definitely doesn't cancel out my salary. The third property didn't start getting rented out until this year so that wasn't on my previous tax returns.

I'm not a tax expert so it would be best to consult with a CPA or other professional and also talk with experienced investors who own multiple properties. 

 Thank you!  I became an accidental investor and decided to keep the properties instead of selling them off for the cash (my non-investor friends advice during the seller's market from 2019 to 2021). I have a good amount of equity in those properties to pull out for a down payment on a future rental. I knew something was off when realtors from the Midwest,Tennessee and Florida are sending me listings from $300,000 to $450,000 and I'm competing against primary home buyers (that's a nice commission for the realtors). The numbers don't work for me. I don't think I'll be getting a positive cash flow from buying a $425,000 house at current interest rates and charging $2300 month rent (one example). The financial analysis part is not my strong point. I'll start looking at other sources.